Eurozone inflation rate up at 1.8 percent in September, close to official target

By Pan Pylas, AP
Thursday, September 30, 2010

Eurozone inflation rises to 1.8 pct in September

BRUSSELS — Inflation in the 16 countries that use the euro rose again in September to near the European Central Bank’s target, official figures showed Thursday.

Eurostat, the EU’s statistics office, said eurozone consumer prices rose to a 22-month high of 1.8 percent in the year to September, up from August’s 1.6 percent annual rate.

A more detailed breakdown of the figures will be published in the middle of October but analysts said the main reason behind the spike was likely to come from higher energy and food prices.

Though the rate is more or less at the European Central Bank’s of keeping inflation “close to, but below 2 percent,” interest rates are not expected to be increased anytime soon given ongoing concerns over the banking system and renewed worries about government debt, particularly in Ireland and Spain.

Analysts doubt that inflation will spiral out of control given the amount of spare capacity in the eurozone economy following the savage recession, and subdued wage growth amid high unemployment levels.

“Admittedly, other data this morning revealed that German unemployment fell further in September, but given continued job cuts elsewhere, the eurozone unemployment rate remains very high,” at close to 10 percent, said Jennifer McKeown, senior European economist at Capital Economics. “With energy inflation set to fall before long, we see headline inflation dropping to about 0.5 percent in the next six months.”

As a result, the consensus in the markets is that the European Central Bank, which meets again next week, will keep its key interest rate unchanged of 0.5 percent.

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